Short supply of homes fuels rocketing UK rents and house prices

Chris Papadopoullos was City A.M.'s economics reporter until February 2016.

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Chris Papadopoullos

Rental rates in February were up three per cent on the previous year (Source: Corbis)

A short supply of housing and a recovery in economic fortunes is pushing up rents and house prices.

Average monthly rates stood at £766 in February, up 3.1 per cent on last year, according to figures released today by estate agents Your Move and Reeds Rains. London saw the second greatest annual rise in the UK at 4.9 per cent. The biggest rent hikes were in the east of England where they rocketed 10.2 per cent – the fastest growth seen in any region over the past five years.

“The rental sector is carrying the weight of the housing crisis. More homes are needed to house an ever-growing population.

“House prices rising out of reach for people at the lower end of the market makes increasing demand in the private rented sector inevitable. A serious and substantial commitment to new builds is the only way to bring supply in line with demand.”

Survey figures released today by financial services firm Markit and estate agents Knight Frank point to a pick up in house price growth. The firms’ house price index rose to a score of 57.5 for March – any score above 50 signifies growth with higher numbers meaning faster growth. While the majority of households perceive the value of their property has climbed this month, the survey score remains below 63.2 achieved last year. The survey has been a reliable indicator consistent with other widely used housing data.

“Improving economic conditions and positive labour market trends continue to support UK housing demand, while supply remains tight and there are signs that the revival in new housing starts has paused for breath in recent months,” said Tim Moore, senior economist at Markit.

The revival in prices comes after the market remained relatively flat over the festive period.

February mortgage lending dropped nine per cent on the same time last year and on January, according to data released by the Council of Mortgage Lenders yesterday. Gross lending is estimated at £13.4bn, the lowest monthly estimate since April 2013.

However, mortgage brokers have said these figures reflect completions and so represent housing market activity with a lagged effect.